Jul. 20 – The China Internet Network Information Center released its 28th report on China’s internet development conditions (in Chinese) yesterday, showing that during the first six months of 2011 the country’s internet users have increased to 485 million, and more and more people have been utilizing the internet for commercial purposes such as online shopping.

Largest internet user population
Although some 63.8 percent of the population has not surfed the internet in the last six months, China is still the country with most internet users in the world with a netizen population of 485 million by the end of June. However, due to a lack of new internet technology that usually attracts more followers, the report says the growth in the number of internet users has slowed down significantly to a rate of 6.1 percent compared to the end of last year.

Cell phones have become as popular as personal computers with regards to the devices used to access the internet. The number of China’s mobile internet users have reached 318 million, increasing by 15 million from six months earlier. However, compared to the surge of 204 million users between 2008 and 2010, the recent growth in mobile internet users has kept a comparatively slow pace. The report predicts that the current pace will not likely change without the emergence of various network applications and a reduction in mobile internet charges.

Weibo users surgeWeibo (translation: microblog), the Chinese equivalent of Twitter, has become the fastest growing network application over the past half year. The number of Weibo-users in China surged by an impressive 208.9 percent and quickly expanded their group to 195 million users.

This new form of blogging – where content is typically smaller than traditional blogging in both actual and aggregate file size – has considerably changed the ways in which Chinese netizens view, discuss, and interact with the latest news and other trending topics. The report finds that, partly due to the use of Weibo (through which every user can instantly upload news), the number of people viewing traditional internet news has decreased by 2.5 percent from six months earlier, to 362 million.

The popularity of Weibo has also diminished the growth in the population of traditional bloggers, which only saw a slight increase of 1.1 percent compared to the end of 2010. What is more, according to the report, even the mere 1.1 percent increase owes to the development of messengers and social network services (SNS) that usually accompanies the function of traditional blogging as a comprehensive network application.

The expansion of social network web sites is threatened by Weibo as well. Over the past six months, the scale of subscribers on social network web sites shrunk by 2.2 percent, and the SNS capacity utilization rate marched down to 47.4 percent, compared to the rate of 51.4 percent at the end of last year.

Interestingly, while Weibo has risen as the brightest star on the stage of China’s internet recently, the report noted the potential of the emerging “light blog” Qing to lead another revolution in the country’s social communication. Qing looks to serve as the Chinese version of Tumblr, and will reportedly combine the features of both traditional blogging and Weibo.

E-commerce welcomes Groupon model
While the competition among China’s B2C online shopping web sites has grown fierce, a new “group buying” online shopping model – inspired by the U.S.-based Groupon – has attracted a sizable amount of subscribers. The population of group buyers doubled between January and June to 42.2 million from the record of 18.8 million reported last December.

Despite the current prosperity in China’s group buying market, many experts have questioned if the Groupon model would be sustainable. Wang Huiwen, founder of one of China’s group buying web sites meituan.com, said on his Weibo account yesterday that he is not very optimistic about the prospects of China’s group buying market. Pointing out that various types of costs in the field have surged 10 times while the number of group buyers only doubled, Wang indicated the numerous group buying web sites will soon face a market shuffle and small players may exit.

U.S investor Jose Ferreira even published an article in early June calling the Groupon model “a straight-up Ponzi Scheme – an investment that rewards separate investors not from the organization’s profit, but from the investor’s own money or money paid by subsequent investors. Ferreira says Groupon has to remit a big part of its revenues back to the local merchants because a vast majority of local businesses cannot provide discounts higher than 25 percent. Although it is not confirmed whether Chinese group buying web sites also return their revenues to merchants they cooperate with, a number of them have failed due to the lack of capital, according to a report by China’s major portal Tencent today.

Web security remains a challenge
A series of figures from the report say internet security remains a major concern for the growing population that uses internet for various purposes. Over the past six months, 44.7 percent of internet users had experienced virus or Trojan software attacks, 24.9 percent of people reported their account or password stolen, and 8 percent of them suffered from consumer fraud.

Web security issues have grown into a major challenge facing China’s e-commerce players, including online shopping web sites and online payment companies. The massive population of 173 million online shoppers and 153 million online payers require e-commerce companies to rapidly update security measures and ensure a safe online environment.

Meet the firm behind our content. Dezan Shira & Associates have been servicing foreign investors in China, India and the ASEAN region since 1992. Click here to visit their professional services website and discover how they can help your business succeed in Asia.

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